Paul Hastings' Jennifer Daly on private credit trends and deal structure
Dec 12, 2024
auto_awesome
Jennifer Daly, the Head of Private Credit and Special Situations at Paul Hastings, offers deep insights into the evolving private credit market. She discusses trends and optimism surrounding mergers and acquisitions in sectors like healthcare and technology. The conversation highlights the implications of tariffs, the balance between rising costs and lower interest rates, and the shift towards more flexible deal structures. Daly also navigates the differences between Chapter 11 bankruptcy and out-of-court restructuring, emphasizing the new protections for borrowers.
The private credit market is thriving due to favorable political conditions, with strategic partnerships enhancing opportunities for growth amidst rising M&A activity.
A shift in deal structures reflects a move towards more flexible financing terms and protective clauses, indicating evolving borrower-lender dynamics in private credit.
Deep dives
The Growing Landscape of Private Credit
The private credit market is considered to be in a 'golden age', with increasing activity driven by a favorable political environment. Strategic partnerships and joint ventures between banks and private credit funds are becoming more common as firms position themselves for a robust deal environment. The expectation of rising M&A activity is contrasted by potential challenges related to tariffs and economic volatility, which could impact underwriting and business operations. Overall, the market is viewed as still in its early stages, with significant opportunities for growth ahead.
Impact of Tariffs and Macro Volatility
Tariffs placed on countries like China, Canada, and Mexico raise concerns about their effects on U.S. businesses, particularly those relying on specific imports for operations. While tariffs may introduce unpredictability in costs and rates, they could simultaneously open doors for distressed or opportunistic investors in need of short-term liquidity solutions. The interconnectedness of tariffs and anticipated lower interest rates further complicates the market outlook, leading to potential volatility that could affect sectors such as agriculture. Historical parallels during events like COVID highlight private credit's resilience and adaptability in navigating these challenges.
Sectors Poised for M&A Activity
Several sectors are projected to experience increased activity in M&A deals and private credit financing, with oil and gas, healthcare, and technology standing out as key areas of growth. The energy sector is expected to benefit from favorable administration policies, while healthcare may see relaxed regulations that promote roll-up strategies by private equity funds. Technology remains a vibrant field, particularly with influential players like Elon Musk and the anticipated changes to FCC regulations drawing interest and investment. Financial services, especially regional banks, could also witness increased mergers and acquisitions following a period of tighter regulations.
The Evolution of Deal Structures
The private credit arena is seeing a noteworthy shift in deal structures, moving from traditional financing methods towards more hybrid forms and preferred equity investments. Investors are increasingly pursuing flexible terms, such as high watermarks on EBITDA and amendments to debt capacity configurations that enhance borrower flexibility. This evolution includes a growing focus on liability management transactions, with borrowers negotiating protective clauses that could shape future financing strategies. Overall, this indicates an emerging landscape where borrowers and lenders collaboratively refine financial contracts to adapt to changing market demands.
Jennifer Daly, head of private credit and special situations at Paul Hastings talks to Madalina Iacob, co-managing editor of Debtwire North America about trends in the private credit market and her outlook on deal environment under the Trump administration. She delves into deal structures and the latest covenant protections that private lenders are requesting.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode